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Informist, Monday, Sept. 8, 2025

NEW DELHI – The Delhi High Court has set aside NTPC Ltd.'s circular to ban business dealings with Cembond Constructions for a year. In March, NTPC had banned Cembond Constructions after the state-owned company's joint venture Aravali Power Co. Pvt. Ltd. had in February banned Cembond as it failed to execute its contractual obligations.

The high court said the petitioner Cembond Constructions' privity of contract is only with Aravali Power Co. The petitioner has no contractual association with NTPC, said the high court. The petitioner's dealings with Aravali Power Co., which is an independent corporate entity, cannot have any bearing or impinge upon Cembond Constructions' rights to pursue business dealings with entities other than Aravali Power.

The high court said it has been emphasised by the Supreme Court time and again, that banning or debarment is akin to civil death and that such an action must be taken with extreme circumspection and after adhering to procedural safeguards as mandated under law, and in consonance with principles of natural justice. The extension of banning order passed by Aravali Power Co., to proscribe business dealings of the petitioner with respect to entities which do not have any contractual dealings with Cembond Constructions, constitutes an arbitrary, disproportionate and unwarranted restriction of the legal and fundamental rights of the petitioner and its shareholders, said the court.

The high court noted that in the present case, the banning of the petitioner by NTPC and its entities is not preceded by any show cause notice. In any event, a debarment order issued by one entity cannot be extended to other group companies without any independent opportunity of hearing through a separate show cause notice, said the court. The principles of natural justice do not contemplate a cascading penalty in the absence of reasoned determination by each entity proposing to inflict a penalty, the court added.

The case goes back to a purchase order awarded to Cembond Constructions by Aravali Power Co. "for Structure Strengthening & Life Enhancement of NDCT-II" at Indira Gandhi Super Thermal Power Project at Haryana, at a tender cost of INR 102.08 million. Disputes arose between Cembond Constructions and Aravali Power Co., allegedly due to the failure of the latter to provide necessary site access and requisite permissions, as a result of which the execution of the said contract was allegedly rendered impossible.

Subsequently, the petitioner invoked the arbitration in terms of the relevant contractual stipulation in the contract agreement between Cembond Constructions and Aravali Power Co., which was pending adjudication. In the meantime, an order was passed in February by Aravali Power banning the petitioner from business dealings with it for a period of one year.

At 1421 IST, shares of NTPC were down 0.3% at INR 327.60 on the National Stock Exchange.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Surya Tripathi

Edited by Ashish Shirke

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